2014 is set to be a busy year for developers with two of the most significant legislative changes in more than 50 years expected to come into operation.
The impending strata law reforms and amendments to planning legislation promises to breathe new life into NSW’s housing industry, creating development opportunities, generating economic growth, and reviving our urban landscape.
There is little argument that NSW strata laws are complex and out-dated. Despite various amendments over the years, strata laws continue to impede redevelopment and urban consolidation. There are 72,000 strata schemes in NSW, 30 percent of schemes are more than 30 years old, however, only around one percent of schemes (826) have been terminated since 1961.
Within the next 20 years, half of the state’s population is expected to be living or working in a strata or community scheme.
25,000 new apartments are currently in the development pipeline in inner Sydney alone but despite this apartment boom, housing production still falls far short of the 40,000 dwellings required annually to meet demand.
Urban infill development will need to form a key part of housing Sydney’s future population and the proposed strata law reforms will help to facilitate this.
COLLECTIVE SALE OR RENEWAL
The most pivotal reform for developers is a reduction to the threshold requirement from 100 percent to 75 percent support for a collective sale or renewal of a strata scheme. The current requirement of unanimous support to terminate a scheme has made redevelopment of strata title land almost impossible. There is little argument that this reform will need to be carefully executed to preserve the rights of the owners who opposed a termination. However, despite the potential difficulties, the alternative of no reform will continue to spiral NSW into further housing undersupply.
Sale or renewal of a scheme will be determined through a staged process:
1. an opt-in resolution to investigate (requires 50 percent support from owners)
2. development of a proposal
3. formation of a Strata Renewal Committee
4. development of a renewal plan
5. consideration of sale or renewal (owners given a minimum of 60 days to consider the plan. A
termination requires 75 percent in support based on a "one lot one vote" system
6. application to the Strata Commissioner.
Under the new system, a developer will be required to commission an independent defects report within 12-18 months after completion. Defect rectification will be a compulsory agenda item at each AGM, and developers will no longer have the right to vote on defect matters. Developers are also required to prepare a maintenance schedule to assist owners corporations maintain their buildings and understand the costs associated.
Developers of strata buildings of more than 3 storeys will be required to pay a bond equalling two percent of the total construction costs. The bond will be held until the inspector agrees that the identified defects have been fixed or until the two year statutory home warranty period expires. This new obligation has significant cost consequences for developers and future project planning will need to allow for these costs.
SETTING OF LEVIES
An ongoing issue of contention between owners and developers that the reforms look to rectify is the setting of levies. The new reforms provide owners corporations with compensation rights against a developer if it can be demonstrated that the developer used its influence to set unrealistically low levies.
KEY REFORMS AFFECTING DEVELOPERS
+ 75% threshold for collective sale or renewal of a strata scheme
+ Developer to commission an independent defects report
+ Developers of high-rise strata buildings to pay a defects bond
+ Owners corporations can seek compensation against the developer if unrealistic levies were set
+ Developers or anyone connected to the developer will not have the right to vote on defect matters
+ Developer to prepare a maintenance schedule
+ A strata development lot can be subdivided by a further strata development lot in a staged scheme
+ In a staged strata scheme, there will be no effective difference between a BMS and an SMS - one document can live through the life of the development.
+ Defect rectification will be a compulsory AGM agenda item
+ When registering a scheme, unit entitlements will be determined by an independent valuation
+ Requirement to disclose cost allocation for shared facilities and the method used on new strata and Building Management Statements.
OTHER NOTEWORTHY REFORMS
+ Limits on the number of proxies which members can hold will be imposed
+ The name of the ‘executive committee’ will be changed to ‘strata committee’
+ Large schemes in excess of more than $250,000 to have their accounts audited each year
+ The 10 year sinking fund plan will be required to identify how it will be funded in the long term
+ Exclusion of personal liability for committee members
+ Strata management agencies to disclose commissions gained from third parties
+ Strata documents can be held and distributed electronically
+ Changes to the model by-laws to address common issues, including parking, pets, smoking, and hardwood floors
+ Strata agents to disclose potential conflicts of interest, including any relationship they have with the developer
+ Management agreements will be limited to a period of no more than three years.
David Ferguson is Managing Director of Strata Plus, a Sydney-based team of strata managing agents that was established in 2001. David was a member of Clover Moore’s strata reform group 2011 as well as the recent past President of Strata Community Australia (5 years), and Brokered joint position paper on strata renewal with SCA NSW, Owners Corporation Network (OCN) & UDIA NSW.